About the FICO Credit Score
Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number.
The FICO score is compiled by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.
Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, all of the agencies use the following to determine your credit score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
Credit scores make a huge difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my FICO score?
What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.
Know your FICO score
In order to raise your score, you must get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are information and tools that help you improve your credit score.
You can get a free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Give us a call: (713) 723-7800.